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IBM : Systems Group :: © 2015 IBM Corporation
Making Blockchain Real for Business
Explained
1V2.01 29 Oct 15https://ibm.box.com/BlockExp
IBM Blockchain 2015
Investment Interest in Blockchain• Blockchain has the potential to reduce infrastructure
cost by up to $20 billion a year.• P2P money Transfer across international borders -
segment worth $500 B.• Anderseen Horowitz ( VC firm) has invested over USD
$100 million into Blockchain technology• All time Public/VC investment into Blockchain startups -
$894 million.• Over 4000 active fintech startups in the NY arena and
investment in the sector tripling last year to $12 billion.
Source – LTP,Finextra
IBM Blockchain 2015 Source: EverisDigital/LTP
FinTech Landscape – Disruptive Forces in Financial services
IBM : Systems Group :: © 2015 IBM Corporation 5
Blockchain in a nutshell
Smart Contract
Smart Contract
CryptographyCryptographyShared LedgerShared Ledger
ConsensusConsensus
Ensuring secure, authenticated & verifiable transactions
Business terms embedded in transaction database & executed with transactions
All parties agree to network verified
transaction
Append-only distributed system of record shared across business network
Broader participation, lower cost, increased efficiency
What?
IBM : Systems Group :: © 2015 IBM Corporation 7
Business Networks, Markets & Wealth
• Businesses don’t exist in isolation– Connected to customers, suppliers, banks,
partners etc. through Business Network– Networks cross geography & regulatory
boundary• Wealth is sum total of value of goods & services
across business network– Growth constrained if silo’d or inefficient
• Flow goods & services across business network is a Market– OPEN (fruit market, outcry commodities, or– CLOSED (supply chain financing, bonds)
IBM : Systems Group :: © 2015 IBM Corporation 8
Transferring Assets, building Value
• Anything that is capable of being owned or controlled to produce value, is considered an asset – can be tangible or intangible – value can be converted into cash.
• Cash also an asset.• Asset examples:
– Cars, value clothes (physical)– Bonds, securities, repurchase agreements
(intangible)– Licenses & patents (intangible assets)– Music, video, games (intangible, digital)
IBM : Systems Group :: © 2015 IBM Corporation 9
Participants, Transactions & Contracts
• A participant is a member of a business network– Customer, Supplier, Government, Regulator
– Usually reside in an organization
– Have specific identities and roles
• A transaction is an asset transfer between two or more participants, for example– John gives a car to Anthony (simple)
– John gives a car to Anthony, Anthony gives money to John (more complex)
• A contract is set of conditions under which transactions occur, for example– If Anthony pays John money, then car passes from John
to Anthony (simple)
– If car won't start, funds do not pass to John (as decided by independent third party arbitrator)
$
IBM : Systems Group :: © 2015 IBM Corporation 10
Blockchain in a nutshell
Shared ContractShared
Contract
CryptographyCryptographyShared LedgerShared Ledger
ConsensusConsensus
Ensuring secure, authenticated & verifiable transactions
Business terms embedded in transaction database & executed with transactions
All parties agree to network verified
transaction
Append-only system of record shared across
business network
Broader participation, lower cost, increased efficiency
IBM : Systems Group :: © 2015 IBM Corporation 11
When is Blockchain useful?Many companies are jumping on the blockchain bandwagon, but do not have fully vetted use cases. Blockchain can work best when ALL of the following conditions are met:
Shared Database
Transaction Interaction
Disinter-mediation
Absence of Trust
Multiple Writers
• There is a need for a structured repository of information, whether the data is structured in spreadsheet like tables or like a filing system
• Databases are modified via “transactions” which represent a set of changes to the database whiuch must be accepted or rejected as a whole
• Blockchains truly shine where there is some interaction or dependency between the transactions created by different writers
• Blockchain transactions can be created collaboratively by multiple writers without either party exposing themselves to risk
• There needs to be a lack of a trusted intermediary or central gatekeeper to verify transactions• Blockchains enable databases with multiple non-trusting writers to be modified directly• Transactions can be independently verified and processed by every node which maintains a copy of the
database
• There needs to be a level of mistrust between entities writing to the database• Mistrust arises between separate organizations, but can also exist within a single large organization,
such as between departments or operations in different countries• Mistrust means that one user will not accept the “truth” as reported by another user
• There needs to be more than one entity which is generating the transactions that modify the database
• In most cases the writers will also run “nodes” which hold a copy of the database and relay transactions to other nodes in a peer-to-peer fashion (but not required)
IBM : Systems Group :: © 2015 IBM Corporation 12
Public Network Fabric
Business Adoption Challenges
1. Designed for public network 2. Slow and inefficient 3. Built‐in virtual currency4. Difficult to push upgrades5. Heavily forked6. Lack enterprise support
Private Network Fabric
Business Adoption Challenges
1. Incomplete & usually untested 2. Usually too simple & inflexible 3. Still lack critical enterprise features
such as identity management system4. Generally lack community support5. Not standardized
There are two options for building private network for businesses 1) Reconfigure a public network fabric for private use, or 2) Build on top of a untested private network fabric that’s available
Is blockchain ready for business?
IBM : Systems Group :: © 2015 IBM Corporation 13
Industrial Blockchain – IBM’s Perspective
Private & permissioned (not public)
• Private = known set of participants, known identity
• Permissioned = members need to fulfill criteria to join
• (Public = open set of participants, potentially unknown identity)
Privacy through Cryptography
• Transaction privacy
• Participant identity & trading privacy
Appropriate consensus
• Mechanism by which participants agree on state of shared ledger.
• Public needs heavyweight consensus for anonymous participants
• Known participants opens up other forms (e.g. participant bonds)
Compliance & audit
• Current spend can be vastly reduced
• Automated processes possible
What?
IBM : Systems Group :: © 2015 IBM Corporation 14
Blockchain vendors – Offer specialization
Each Vendor – Offers Specialization
- Variant trust systems –Consensus, Mining, Proof of Work etc.
- Lock into single trust system- Purpose built infrastructure
components for a specialized use case
- Design being field tested in form of POCs.
- Crates fragmented blockchainmodels for enterprise.
IBM : Systems Group :: © 2015 IBM Corporation 15
How can IBM Blockchain be Different?
How Do we differentiate ?
- Open Design - Providing flexibility with pluggable
and modular trust system- Open for specialized blockchains
e.g. Ripple- Trust Intermediary – a trust system
provisioning layer - Enterprise blockchain platform
concept - Separate Business domain with
technology that supports it.
IBM : Systems Group :: © 2015 IBM Corporation 16
Blockchain – Transaction Processing vehicle
Enterprise Integration Considerations- Integration with incumbent SoR- Compliance and regulatory
requirements- Data formats – ISO20022, EDI
820 etc.- Blockchain to enable transaction
processing, and preserve the enterprise SoR systems.
- Design Intent - Path of least disruption- Accelerate Enterprise
adoption
IBM : Systems Group :: © 2015 IBM Corporation 20
Summary
• Disruption – Everywhere there is Friction AND costs.
• P2P Network – Exploit underutilized Capacity
• Business Network – Emergence of New Networks
• New Payment Models – P2P, Virtualized Financial Services, Overlay services
• Discern between Virtual, cyber and Cryptocurrency.
IBM Systems Group :: IBM Confidential :: ©2015 IBM Corporation http://www.digifinancegirl.com
Silos of the Financial Services Industry
IBM : Systems Group : IBM Confidential :: © 2015 IBM Corporation 24
Summary
1. Blockchain is a shared, replicated ledger technology
2. IBM supports an open standards, open source, open governance Blockchain
3. Blockchain can open up business networks by taking out cost, improving efficiencies and increase accessibility
4. Blockchain addresses an exciting and topical set of business challenges, which cross every industry
5. IBM has an easy to access, proven and incremental engagement model giving customers the confidence to get started NOW